TAILIEUCHUNG - State Income Taxes and Economic Growth

Provided that the increased productive effi ciency of the cor- poration leads to growth in overall societal income and wealth, and that the income and wealth is fairly distributed within the society, it should then benefi t all or most members of the society in the long run. Th e high executive salary may then be justifi ed in consequentialist terms by being in the long term interests of all members of the society. Philosophically economic effi ciency as a justifi cation for executive salaries is, in terms of distributive justice, a form of incentive theory,. | State Income Taxes and Economic Growth Barry w Poulson and Jules Gordon Kaplan This article explores the impact of tax policy on economic growth in the states within the framework of an endogenous growth model. Regression analysis is used to estimate the impact of taxes on economic growth in the states from 1964 to 2004. The analysis reveals a significant negative impact of higher marginal tax rates on economic growth. The analysis underscores the importance of controlling for regressivity convergence and regional influences in isolating the effect of taxes on economic growth in the states. Taxes and State Economic Growth A number of studies have explored the impact of taxes on state economic Most but not all of these studies find evidence of a negative effect of taxes on various measures of state economic performance. A few studies have attempted to isolate the effect of state Cato Journal Vol. 28 No. 1 Winter 2008 . Copyright Cato Institute. All rights reserved. Barry W. Poulson is Professor of Economics at the University of Colorado Boulder and a Distinguished Scholar at the Americans for Prosperity Foundation. Jules Gordon Kaplan is Adjunct Professor of Economics at the University of Colorado Boulder. They wish to thank Byron Schlomach Mary Katherine Stout and a referee for helpful comments. Financial support was provided by the Texas Public Policy Foundation. An earlier version of this article was published by the Texas Public Policy Foundation Poulson and Kaplan 2007 . 1See Bartik 1991 Plaut and Pluta 1983 Benson and Johnson 1986 Helms 1985 Canto and Web 1987 Rasmussen and Zuehllke 1990 Vedder 1990 1995 Modifi and Stone 1990 Barry and Kasermman 1993 Bahl and Sjoquist 1990 Hines 1996 Crain and Lee 1999 Crain 2003 Haughwout et al. 2003 Inman 1989 1995 Goolsbee and Maydew 2000 and Besci 1996 . 53 Cato Journal income taxes on economic Most of those studies find or no effects of average tax levels on income but high marginal income tax rates .

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